Productivity: Giant Economy Size

November 20, 1979

Maybe there's nothing seriously wrong with this country's ability to invent and manufacture goods and sell them at competitive prices.

Maybe all those worshipful, multipartisan incantations about "productivity" come more from confusion and hucksterism than from marketplace reality. And maybe it's time to recognize that many of those seemingly authoritative statistics on relative international economic performance are only vague measures of what's going on out there -- and the first to point this out, often futilely, are the anonymous civil service statisticians who serve them up to their shrill-sounding political chiefs. As they humbly explain at the Bureau of Labor Statistics, our official scorekeeper for international productivity, national accounting methods vary so widely that a lot of estimating and statistical patchwork is necessary to get the job done.

What first ought to be noted about the presumably diseased state of the American economy is that, after an astonishing 15-year-long postwar growth orgy, the pace of expansion did indeed slow down; meanwhile, West Germany and Japan, after long periods of postwar reconstruction, picked up speed and eventually began growing faster than the United States.

But what's rarely ever brought to public attention is a point buried deep in a forthcoming report from the National Science Foundation: as recently as 1977, Japanese productivity was "still only about two-thirds the U.S. level." Also, the united States then led -- and still does -- all other countries in productivity.

One reason so little is said about the overall U.S. lead in the level of productivity is that it's easy to measure year-to-year changes in a given country, but extremely difficult to make what the statistics bureau refers to as "intercountry measures of absolute levels of productivity." Thus, as is often the case in the political process, measurability detemines what gets talked about.

Easily overlooked are the facts that the ruins of World War II were cleared away long ago and the lengthy U.S. dominace in many products was an economic aberration that other industrialized nations sensibly refused to endure. Fifteen years ago, for example, steel productivity in the United States was roughly double that Japan, Germany, France and several other industrilized countries. Japan is now substantially ahead of the United States, while Germany and the others remain behind.

However, Japanese economists have lately been warning that Japan has exhausted the easy opportunities for rapid growth and that from now on productivity increases will not come so easily.

That other countries are doing better does not mean that the United States is doing worse, though various interests try to make it look that way as they propose remedies that, coincidentally, would be highly advantageous to them. Organized labor says the productivity statistics support the need for import protection, industry says it's hampered by government regulations, and universities have inventively grasped the productivity issue as clear evidence of the need for more spending on research.

The need for skepticism in listening to this clamor can be seen in Wall Street's new-found interest in the American pharmaceutical industry, which, by many accounts over recent years, had been brought to terminal condition by regulatory burdens and the alleged decline of university science, on which it largely depends for new knowledge.

Well, the pharmaceutical industry is booming -- record profits, lots of new pills on the way. As recently quoted in Business Week, the president of the Upjohn Co., Dr. William N. Hubbard, says, "We will in time see a period of important new products in larger numbers than we have ever seen before. They are already in the pipeline."

The supposedly strangling federal drug rules are still in place, and university science is still screaming that it's financially undernourished. Nonetheless, the drug companies are mysteriously confronted by properity.

A plausible explanation is that industrial innovations come in clusters and that, after a decade or so of exploiting past biological research, the industry has got up a head of steam for developing new products out of the scientific knowledge that has since accumulated.

It is, of course, easier to say that the Japanese and Germans are playing unfair and that we're manacling ourselves than it is to acknowledge that the United States -- even with its many industrial and economic infirmities -- is unequaled as an industrial giant.